Surprise and Relief
Average Annualized Return Per Closed Trade: 17.9%
Average Return Per Closed Trade: 15.5%
Average Holding Period: 320 days
At the March Federal Open Market Committee (FOMC) meeting this week, the Fed raised the benchmark federal funds rate to a target range of 0.75 percent to 1 percent—the third rate hike since December 2015 and the second time in three FOMC meetings. Of course, before that, the Fed hadn’t raised rates since 2006.
Because the market had already widely anticipated the move, the quarter-percentage point rate increase was widely expected and thus wasn’t a factor. However, the FOMC members’ quarterly economic projections, released concurrently with the policy statement, served as a dovish surprise.
In the weeks prior to the FOMC confab, incoming domestic economic data that shows solid growth and higher inflation; commentaries from Fed officials had increased expectations of a faster Fed pace in tightening. Despite hints of increased Fed hawkishness, this week’s projections suggest that the outlook of FOMC members in fact remains essentially unchanged since December—implying three quarter-point rate hikes in 2017. The Fed policy statement also continued to state that Fed officials expect a “gradual” pace of tightening.
As far as market participants are concerned, the financial market environment remains excellent given continued (presumed) accommodative monetary policy and a backdrop of (presumed) faster economic growth under the Trump economic agenda of lower taxes, looser regulations, and more fiscal spending. Thus, in response to the more-dovish-than-expected Fed announcements, stocks, bonds, commodities, and precious metals all rallied while the dollar fell. GDX, an ETF of gold miners, jumped more than 7 percent.
This week’s Dutch election, which featured 28 parties, also gave investors a reason to sigh in relief. The center right party of incumbent Prime Minister Mark Rutte held off the challenge from the anti-Islam, anti-immigration, and anti-EU far right Freedom Party (PVV) party. Rutte’s People’s Party for Freedom and Democracy (VVD) will have 33 seats, the largest representation in the fragmented 150-seat Dutch parliament. PVV took second place with 20 seats (a five-seat increase), but just one seat ahead of the third place tie of two moderate left-leaning parties (CDA and D66). A pro-EU, green progressive party (GreenLeft) also jumped from four seats to 14.
Rutte is expected to form a coalition with CDA, D66 and at least one other party as the three are 5 seats short of a ruling majority. Most party leaders have vowed not to work with the PVV. While the nativist movement continues to gain steam, for now the moderates have kept control in the Netherlands.
Of course, the bigger EU test will come with elections in the union’s two leaders, France (the first round scheduled for April 23) and Germany (September). In France, unpopular incumbent president François Hollande will not run for reelection. Marine Le Pen, the presidential nominee from the far-right National Front party, vows to hold a referendum on the EU, à la the Brexit referendum.
The latest polls indicate that Le Pen holds a small, shrinking lead over her next closest rival Emmanuel Macron, who has a strong background in finance and has distanced himself from the political establishment—he founded the En Marche! party less than one year ago. If no candidate wins a majority in the April election, then the top-two vote getters will face off against each other in a run off on May 7. Le Pen is currently expected to finish in the top two in the first round and make the run off but lose to the other candidate. However, as Brexit and Trump have shown, only actual votes count, not the polls or expectations.
Meanwhile, Angela Merkel, widely regarded as an anchor of centrist stability in Germany, faces populist challenges from both the left and the right. The challenge from the left could take sufficient votes from Merkel to create an opening for the Frauke Petry, her main rival in the far-right AfD party.
While the far right may not win enough votes to seize control of the government this time, it is a legitimate—and growing—threat to the integrity of the European Union. Its growing popularity has forced the incumbents (whether in the Netherlands, France, or Germany) to shift right; it’s impossible to predict whether the nativist movements will eventually win enough support to dissolve the EU.
U.S. stocks continue to enjoy the post-election optimism and it’s certainly been a good time for investors. Absent a major surprise or two, the U.S. market likely will avoid a major decline, but the risk for said surprise remains present and Europe remains a big one. We will monitor the upcoming French election very carefully.
We post a snapshot of our Brain Trust Profits Portfolio and the record of our closed trades below. For a more detailed table of current recommendations as well as information on closed trades, log into our website and click on the ‘Portfolio’ link.
|Company (Symbol)||Recomm. Date||Recomm. Price||Sold Date||Price Sold||Total Return||Holding period (days)|
|Liquidity Services (LQDT)||12/14/12||$39.75||2/8/13||$34.27||-13.8%||56|
|Xinyuan Real Estate (XIN)||10/5/12||$2.86||3/8/13||$4.73||68.9%||154|
|Gentex Corp. (GNTX)||1/18/13||$19.25||4/16/13||$20.53||7.4%||88|
|Liquidity Services (LQDT)||1/31/13||$30.80||4/16/13||$32.25||4.7%||75|
|Associated Estates Realty (AEC)||9/28/12||$15.20||6/3/13||$16.54||12.5%||248|
|Rovi Corporation (ROVI)||7/15/13||$23.58||8/16/13||$18.81||-20.3%||32|
|Sears Holdings (SHLD)||3/12/13||$50.62||9/18/13||$59.44||17.4%||190|
|Rovi Corporation (ROVI)||7/15/13||20.57*||10/31/13||$16.74||-18.6%||108|
|MRC Global (MRC)||7/26/13||$27.25||11/4/13||$29.94||9.9%||101|
|Xinyuan Real Estate (XIN)||10/5/12||$2.86||11/14/13||$5.52||101.4%||405|
|Sprint Corporation (S)||8/22/13||$6.96||11/18/13||$7.61||9.3%||88|
|Eldorado Gold (EGO)||9/14/12||$15.62||12/16/13||$5.60||-63.3%||458|
|St. Joe Corporation (JOE)||3/12/13||$21.11||12/18/13||$18.16||-14.0%||281|
|Idenix Pharmaceuticals (IDIX)||11/19/13||$4.48||12/30/13||$6.39||42.7%||41|
|Riverbed Technology (RVBD)||12/16/13||$16.90||1/8/14||$19.87||17.6%||23|
|Osisko Mining (OSKFF)||11/16/12||6.28*||1/13/14||$5.69||-9.5%||423|
|Idenix Pharmaceuticals (IDIX)||11/19/13||$4.48||1/17/14||$7.97||78.0%||59|
|Nuance Communications (NUAN)||9/28/12||$24.70||3/3/14||$15.00||-39.3%||521|
|Rocky Brands (RCKY)||11/25/13||$15.49||3/19/14||$14.12||-7.6%||114|
|Energy XXI (EXXI)||2/12/13||$32.00||5/16/14||$20.50||-34.2%||458|
|Sirius XM Holdings (SIRI)#||9/14/12||$2.47||5/28/14||$3.32||36.2%||621|
|ViaSat Inc. (VSAT)#||9/14/12||$40.61||5/28/14||$54.71||34.7%||621|
|Idenix Pharmaceuticals (IDIX)||11/19/13||$5.01*||6/9/14||$23.97||378.4%||202|
|Carter’s Inc. (CRI)||12/18/13||$70.09||7/25/14||$78.50||12.5%||219|
|Thermo Fisher Scientific (TMO)||8/22/13||$90.39||8/29/14||$120.02||33.4%||372|
|GrafTech International (GTI)||3/3/14||$9.60||11/7/14||$4.50||-52.3%||249|
|XO Group (XOXO)||3/19/14||$9.88||11/7/14||$15.23||54.1%||233|
|ViaSat Inc. (VSAT)||9/14/12||$40.61||2/19/15||$64.83||59.6%||888|
|Brandywine Realty Trust (BDN)||10/10/12||$12.35||4/24/15||$15.01||34.9%||926|
|Aaron’s Inc. (AAN)||2/19/15||$30.82||5/18/15||$36.08||17.2%||88|
|Sirius XM Holdings (SIRI)||9/14/12||$2.47||8/17/15||$3.94||62.3%||1067|
|Micron Technology (MU)||9/8/15||$17.06||10/14/15||$18.94||11.0%||36|
|Macquarie Infrastructure Corp (MIC)||3/25/14||$55.43||11/16/15||$75.86||51.0%||601|
|LPL Financial Holdings (LPLA)||4/4/16||$25.16||4/22/16||$27.59||9.7%||18|
|Nordic American Offshore (NAO)||9/5/14||$18.80||5/17/16||$4.79||-69.5%||620|
|Myriad Genetics (MYGN)||8/5/14||$36.92||8/10/16||$20.29||-45.0%||736|
|Pioneer Natural Resources (PXD)||6/8/15||$152.00||8/16/16||$178.02||17.2%||435|
|United Rentals (URI)||11/19/15||$75.91||8/16/16||$78.10||2.9%||271|
|eHi Car Services (EHIC)||5/18/16||$9.91||8/24/16||$11.64||17.5%||98|
|Olin Corporation (OLN)||8/22/16||$21.21||11/30/16||$25.98||23.6%||100|
|Concho Resources (CXO)||2/3/16||$91.54||11/30/16||$141.53||54.6%||301|
|Scripps Networks Interactive (SNI)||4/24/15||$70.15||1/10/17||$74.97||9.9%||627|
|Kindred Biosciences (KIN)||5/16/14||$14.85||2/22/17||$5.95||-59.9%||1013|
|#Position reduced, not sold entirely|
|Total return includes dividend|